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How Do "Shotgun Clauses" work in Alberta Agreements?

Often in shareholder agreements, parties have a clause which is a "Shotgun Clause". This sort of clause works as follows. The party wishing to begin the process selects a price and then sends a notice to the other party. The other party can decide to sell his or her interest at the price, or buy the other party's interest at that price. Mr. Justice Jones looked at shotgun clauses in the case of Costello v Redcity Creative Agency Inc, 2019 ABQB 600. At paragraph 70 he said:

[70] In Trimac Ltd v C-I-L Inc, (1987) 1987 ABCA 144 (CanLII), 6 WWR 66 (Alta CA), the Court held that due to the draconian nature of shotgunbuy-sell agreements strict compliance with the terms of a shotgun clause is required in order to obtain its benefit. This strict compliance requirement was reiterated in 942925 Alberta Ltd v Thompson, 2008 ABCA 81 at para 21.

[71] Further, according to the Ontario Court of Appeal in Western Larch Ltd v Di Poce Management Ltd, 2013 ONCA 722 at para 47, in deciding whether a shotgun buy-sell offer meets the strict compliance test, the commercially reasonable expectations of the parties in the factual context must be considered. Much will depend on the language of the authorizing agreement and the shotgun buy-sell provision.

If you need assistance interpreting the terms of a shotgun agreement, please feel free to contact us.

The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.

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